may 26/Japan’s Tanken mfg survey at dismal 3 yr lows/China furious at the USA for introducing huge tariffs against corrosion resistant steel/Spain’sBanco Populare plummets 20% on a rights offering as this troubled bank tries to shore up its finances/

Good evening Ladies and Gentlemen:

Gold:  $1,220.50 DOWN $3.25    (comex closing time)

Silver 16.34  UP 8 cents

 

In the access market 5:15 pm

Gold $1220.20

silver:  16.32

 

i) the May gold contract is a non active contract.  Yet we started the month with 5.67 tonnes of gold standing and it has increased every single day and today sits at 6.886 tonnes of gold standing:

The amount standing for gold at the comex in May is simply outstanding at 6.886 tonnes. The previous May 2015, we had only .08 tonnes standing so you can certainly witness the difference as the demand for gold by investors/sovereigns is on a torrid pace. This makes the excitement for June gold that much more intense as more players are refusing fiat and demanding only physical metal. I will be reporting daily as to how which is standing for delivery through the active month of June.  June is the second largest delivery month after December.

Despite the whacking of silver, it’s OI refused to decline like gold. Our bankers and the CFTC are “quite baffled” by this. We are now in our 6th year of high open interest in silver with a low price.  This has never happened before.

If I am a betting man, it looks to me like China is the long taking delivery in gold and they are the longs waiting patiently to strike in silver.

Let us have a look at the data for today

.

At the gold comex today we had a POOR delivery day, registering 0 notices for NIL ounces for gold,and for silver we had 19 notices for 95,000 oz for the non active May delivery month.

Several months ago the comex had 303 tonnes of total gold. Today, the total inventory rests at 256.189 tonnes for a loss of 47 tonnes over that period

.

In silver, the open interest FELL by 1793 contracts DOWN to 201,889 DESPITE THE FACT THAT THE PRICE OF SILVER WAS UP by  2 cents with respect to YESTERDAY’S trading..In ounces, the OI is still represented by just over 1 BILLION oz i.e. .1.009 BILLION TO BE EXACT or 144% of annual global silver production (ex Russia &ex China)

In silver we had 19 notices served upon for 95,000 oz.

In gold, the total comex gold OI fell by a CONSIDERABLE 17,864 contracts DOWN to 525,094 as the price of gold was DOWN $5.40 with yesterday’s trading(at comex closing). They certainly got the liquidation in gold but not silver.

 

With respect to our two criminal funds, the GLD and the SLV:

We had no change in gold inventory at the GLD  The inventory rests at 868.66 tonnes. .

We had no change in silver inventory at the SLV/Inventory rests at 335.739 million oz

.

First, here is an outline of what will be discussed tonight:

1. Today, we had the open interest in silver FALL by 1793 contracts DOWN to 201,889 as the price of silver was UP by 2 cents with YESTERDAY’S trading. The gold open interest FELL by 17,864 contracts as  gold was down $5.40 yesterday. Somebody big is standing FOR SILVER and surrounding the comex with paper longs ready to ponce once called upon to take out physical silver.I also believe that for the first time we are witnessing players wishing to stand for real physical in gold.  Gold investors, in the May contract month, are refusing the tempting fiat offer as they want only physical.

(report Harvey).

 

2 a) Gold trading overnight, Goldcore

(Mark OByrne/off today

2b)  Gold trading earlier this morning;

(Mark O’byrne)

3. ASIAN AFFAIRS

i)Late  WEDNESDAY night/ THURSDAY morning: Shanghai closed UP  BY 7.37 PTS OR 0.26%  /  Hang Sang closed UP 29.06 OR 0.14%. The Nikkei closed UP 15.11 POINTS OR 0.09% . Australia’s all ordinaires  CLOSED UP 0.29% Chinese yuan (ONSHORE) closed UP at 6.5576 .  Oil ROSE to 49.88 dollars per barrel for WTI and 50.15 for Brent. Stocks in Europe MOSTLY IN THE GREEN . Offshore yuan trades  6.5611 yuan to the dollar vs 6.5576 for onshore yuan.THE SPREAD BETWEEN ONSHORE AND OFFSHORE WIDENS A BIT.

REPORT ON JAPAN  SOUTH KOREA AND CHINA

a) REPORT ON JAPAN

From Reuters:

 

The all important Tankan manufacturing sentiment was released and it was at a 3 year low:

 “Tankan manufacturing sentiment at three-year low: The Reuters Tankan sentiment index for manufacturers fell to 2 in May from 10 in April, driven by exporting industries, with the survey projection pointing to 5 in August. According to the report, the service sector index fell to 19 in May from 23 in April, weighed by retailers, while the survey projection points to 18 in August. The story attributes the decline to the rising yen’s impact on exporters as well as domestic demand via tourism spending”

b) REPORT ON CHINA

i)Here are some comments on what will happen inside China. I strongly believe that the correct response is Daiwa.

The author believes hat the yuan will fall to 7.5 to the dollar, something that Kyle Bass and Soc Gen agree.  They believe that the FX reserves will fall to below 2 trillion dollars in 2 years.

( Daiwa/zero hedge)

 

ii)Late this afternoon we get word that the USA will add a huge 450% anti dumping duties on corrosion resistant steel.  China is absolutely furious!

( zero hedge)

 

4.EUROPEAN AFFAIRS

Spain’s 7th largest bank Banco Popular saw its shares plummet by 20% as there is a new rights offering trying to shore up its balance sheet.  The bank now must issue over 2 billion of new shares.  The low interest environment is killing this bank along with all of the others:

(courtesy Business Recorder and special thanks to Mark. W for sending this to me)

5.RUSSIAN AND MIDDLE EASTERN AFFAIRS

Saudi officials crack down on the futures contract in the Saudi Riyal as it falters four months out.  This could lead to a huge black swan event.  If the dollar continues to rise, the peg will suffer more and this would cause oil ( a commodity) to fall with the rise in the dollar.  Massive USA dollars leaves the Kingdom which itself causes problems.  Thus the Saudi’s must devalue their riyal, something they do not wish to do.  However if they devalue then there will be a run on all mid-eastern currencies as they must devalue also to stay competitive.

( zero hedge)

 

6.GLOBAL ISSUES

David Stockman comments on the intensifying global reflation ripping apart the globe.

a must read..

( David Stockman/ContraCorner)

7.OIL ISSUES

i)Nigeria has a new terrorist group attacking oil facilities. Today  Niger Delta Avengers (NDA)  pre-announced a morning raid on Chevon and sure enough it is off line.  Nigeria is in deep financial trouble;

( zero hedge)

ii)Oil tops 50 dollars for the first time since October

( zero hedge)

 

iii)With rising oil prices and with the Saudis worried about Iran, Cunningham is betting the farm that the oil freeze is over and they will all pump at full blast

( Cunningham/Oil Price.com)

8.EMERGING MARKETS

none today

9. PHYSICAL MARKETS

i)A great graphic of the London Gold Market and where gold is stored.  This is a repat from two weeks ago but it is worth repeating.

( Bullion star/Ronan Manly)

ii)Nick Barisheff cannot figure out why billionaires are buying ETF’s like GLD which probably has no gold and not buying his bulllion fund which is 100% allocated like Central Fund and Sprott

(courtesy  GATA/Barisheff)
iii)A major Japanese electronics maker approached First Majestic Silver Corp. for the first time last month seeking to lock in future stock, a sign of supply concerns that could boost the metal’s price ninefold, according to the best-performing producer of the metal.

“For an electronics manufacturer to come directly to us — that tells me something is changing in the market,” said Keith Neumeyer, chief executive officer of First Majestic, the top stock in Canada and among its global peers this year. “I think we’ll see three-digit silver,” he said, predicting the metal could surge to $140 an ounce by as early as 2019.

(courtesy Bloomberg)

USA STORIES WHICH MAY INFLUENCE THE PRICE OF GOLD/SILVER

i)Core durables slump which sends the dollar reeling:

( zero hedge)

Let us head over to the comex:

The total gold comex open interest FELL to an OI level of 525,094 for a CONSIDERABLE LOSS of 17,864 contracts AS THE PRICE OF GOLD WAS DOWN $5.40 with respect to YESTERDAY’S TRADING.  We are now entering the NON active delivery month of MAY. For the past two years, we have strangely witnessed two interesting developments and we have generally seen two phenomena happen respect to the gold open interest:  1) total gold comex collapses in OI as we enter any delivery month  and 2) a continual drop in the amount of gold standing in that month as that month progresses. IT SURE SEEMS THAT THE LATER HAS STOPPED. ACTUALLY WE HAVE WITNESSING A GRADUAL RISE IN AMOUNT STANDING THROUGH THE MONTH.  THE MONTH OF May saw its OI fall by  53 contracts DOWN to 18. We had 53 notices filed YESTERDAY so we NEITHER GAINED NOR LOST ANY gold contracts that  will stand for delivery in this non active delivery month of May. We have started the month with 5.6 tonnes and gained in ounces standing everyday but two which remained neutral. The next big active gold contract is June and here the OI FELL by 43,769 contracts DOWN to 88,374 as those paper players that wished to stay in the game rolled to August AND THE REST EITHER STAYED PUT FOR NOW OR LEFT PERMANENTLY. The estimated volume today (which is just comex sales during regular business hours of 8:20 until 1:30 pm est) was excellent at 24,672. The confirmed volume  yesterday (which includes the volume during regular business hours + access market sales the previous day was EXCELLENT at 467,470 contracts if many rollovers. The comex is not in backwardation. We are two trading days away from first day notice, the reading tomorrow and the reading on Tuesday which in reality is Friday’s as we are always 24 hrs back.

(THIS MONDAY IS MEMORIAL DAY AND THERE WILL BE NO USA TRADING.  THUS ONLY 2 TRADING DAYS REMAIN.

Today we had 0 notices filed for NIL oz in gold.

 

And now for the wild silver comex results. Silver OI FELL by 1,793 contracts from 203,682 DOWN to 201,889 despite the fact that the price of silver was UP BY 2 cents with YESTERDAY’S TRADING. For the first time in over 2 years, we have not witnessed a liquidation of open interest as we ENTERED first day notice .  The next active contract month is May and here the OI FELL by 12 contracts DOWN to 576. We had only 5 notices filed yesterday so we LOST 7 SILVER CONTRACTS OR AN ADDITIONAL 35,000 OZ WILL NOT  stand in this non-active delivery month of May. The next non active month of June saw its OI FALL by 58 contracts DOWN to 599 OI. The next big delivery month is July and here the OI fell by 1,710 contracts DOWN to 132,065. The volume on the comex today (just comex) came in at 47,641 which is  GOOD. The confirmed volume YESTERDAY (comex + globex) was VERY GOOD at 55,201. Silver is  in backwardation up to June AND A LITTLE DEEPER. London is in backwardation for several months.
 
We had 19 notices filed for 95,000 oz.
 

MAY contract month:

INITIAL standings for MAY

May 26.
Gold
Ounces
Withdrawals from Dealers Inventory in oz   nil
Withdrawals from Customer Inventory in oz  nil  NIL

 

Deposits to the Dealer Inventory in oz 22,472.85 OZ

BRINKS

 

699 KILOBARS

Deposits to the Customer Inventory, in oz    177.039.37 oz

BRINKS,SCOTIA

INCL. 251 KILOBARS

 

No of oz served (contracts) today 0 contracts
(NIL oz)
No of oz to be served (notices) 18 CONTRACTS

1800 OZ

Total monthly oz gold served (contracts) so far this month 2196 contracts (219,600 oz)
Total accumulative withdrawals  of gold from the Dealers inventory this month   nil
Total accumulative withdrawal of gold from the Customer inventory this month  365,954.4 OZ

Today we had 1 dealer deposits

i) into the dealer Brinks:  22,472.85 oz 699 KILOBARS

total dealer deposit:  31,936.63 0z  699 KILOBARS

Today we had 0 dealer withdrawals:

total dealer withdrawals:  nil oz

Today we had 2 customer depositS:

 

i) Into BRINKS: 8969.65 oz  or (251 kilobars)

ii) Into Scotia:  168,969.72 oz

Total customer deposits;  177,039.37 OZ

Today we had 0 customer withdrawals:

 

total customer withdrawals: NIL OZ

Today we had 0 adjustment:

Today, 0 notices was issued from JPMorgan dealer account and 0 notices were issued from their client or customer account. The total of all issuance by all participants equates to 0 contracts of which 0 notices was stopped (received) by JPMorgan dealer and 0 notices were stopped (received)  by JPMorgan customer account. 
To calculate the initial total number of gold ounces standing for the MAY contract month, we take the total number of notices filed so far for the month (2196) x 100 oz  or 219,600 oz , to which we  add the difference between the open interest for the front month of MAY (18 CONTRACTS) minus the number of notices served upon today (0) x 100 oz   x 100 oz per contract equals 221,400 oz, the number of ounces standing in this non active month.  This number is huge for May. IT NOW SEEMS THAT THE AMOUNT STANDING FOR GOLD IN MAY WILL HOLD AND WITH THAT IT WILL BRING MUCH EXCITEMENT TO JUNE 
 
Thus the initial standings for gold for the MAY. contract month:
No of notices served so far (2196) x 100 oz  or ounces + {OI for the front month (18) minus the number of  notices served upon today (0) x 100 oz which equals 221,400 oz standing in this non  active delivery month of MAY(6.886 tonnes).
WE NEITHER GAINED NOR LOST ANY GOLD OZ STANDING IN THIS NON DELIVERY MONTH OF MAY.
Since the comex allows GLD shares to be used for settling, it may take quite a while for the physical gold to enter the comex vaults.  So far I have seen little evidence of any settling of contracts but I will continue to monitor it for you. 
 
We thus have 6.886 tonnes of gold standing for MAY and 22.311 tonnes of registered gold for sale, waiting to serve upon those standing.  The bankers are still doing their best in cash settling as there is not enough registered gold to satisfy those that are standing.
We now have partial evidence of gold settling for last months deliveries We now have 6.886 TONNES FOR MAY + 12.3917 tonnes (April) +2.2311 tonnes (March) + 7.99 (total Feb)- .940 (probable delivery on March 1) tonnes -.0434 tonnes (March 11,12,17,18) + March 31: 1.2470 and then  April 1,2: – .0006 tonnes  and last week April 16 .3203 and April 22 .(0009 tonnes) + april 29  .205 tonnes + May 5:  3.799 and May 6: 1.607 tonnes – MAY 12  .0003- May 18: 1.5635 tonnes-May 19/   2.535 tonnes  = 17.232 tonnes still standing against 22.311 tonnes available.
 
Total dealer inventor 717,303.903 tonnes or 22.311 tonnes
Total gold inventory (dealer and customer) =8,236,460.621 or 256.189 tonnes 
 
Several months ago the comex had 303 tonnes of total gold. Today the total inventory rests at 249.98 tonnes for a loss of 47 tonnes over that period. 
 
JPMorgan has only 22.79 tonnes of gold total (both dealer and customer)
JPMorgan now has only .900 tonnes left in its dealer account.
May is not a very good delivery month and yet 6.886 tonnes of gold is standing.  What is different from other months is that the bankers cannot offer any fiat to those standing. They want the real stuff. We are extremely close to the all time highs in both gold and silver OI.
 
 end
And now for silver
 

MAY INITIAL standings

 May 26.2016

Silver
Ounces
Withdrawals from Dealers Inventory nl oz
Withdrawals from Customer Inventory  10,042.68 oz

BRINKS

Deposits to the Dealer Inventory nil oz
Deposits to the Customer Inventory  nil
No of oz served today (contracts) 19 CONTRACTS 

95,000 OZ

No of oz to be served (notices) 557 contracts

2,275,000 oz

Total monthly oz silver served (contracts) 2164 contracts (10,820,000 oz)
Total accumulative withdrawal of silver from the Dealers inventory this month nil oz
Total accumulative withdrawal  of silver from the Customer inventory this month  9,774,692.8 oz

today we had 0 deposit into the dealer account

total dealer deposit:nil oz

we had 0 dealer withdrawals:

total dealer withdrawals:  nil

we had 0 customer deposits:

Total customer deposits: nil oz.

 

We had 1 customer withdrawals

i) out of BRINKS: 10,042.68 oz

:

total customer withdrawals:  10,042.68 oz

 
 

 

 we had 1 adjustment

 

ii) out of DELAWARE

9,610.161 oz was adjusted out of the customer and this landed into the dealer account of DELAWARE

The total number of notices filed today for the MAY contract month is represented by 19 contracts for 95,000 oz. To calculate the number of silver ounces that will stand for delivery in May., we take the total number of notices filed for the month so far at (2164) x 5,000 oz  = 10,820,000 oz to which we add the difference between the open interest for the front month of MAY (576) and the number of notices served upon today (19) x 5000 oz equals the number of ounces standing 
 
Thus the initial standings for silver for the MAY contract month:  2164 (notices served so far)x 5000 oz +{576 OI for front month of MAY ) -number of notices served upon today (19)x 5000 oz  equals 13,605,000 oz of silver standing for the MAY contract month.
TODAY, WE LOST 7 CONTRACTS OR AN ADDITIONAL 35,000 OZ WILL NOT STAND FOR DELIVERY.
 
Total dealer silver:  30.124 million
Total number of dealer and customer silver:   153.647 million oz
The open interest on silver is NOW AT CLOSE an all time high with the record of 207,394 being set May 18.2016. The registered silver (dealer silver) is close to multi year lows as silver is being drawn out and heading to China and other destinations. The shear movement of silver into and out of the vaults signify that something is going on in silver.
The reason for the raid today in both gold and silver is probably for the following 4 reasons:
1. The  options expiry for comex ENDED YESTERDAY. HOWEVER  THE OTC AND LBMA OPTIONS HAVE EXPIRY ON MAY 31.20116 AT AROUND NOON OUR TIME.
2. the stranglehold on the May front gold contract month
2. the continued drama in high silver OI
4. potential problem for the bankers in June gold.
end
And now the Gold inventory at the GLD
May 26./no change at the GLD/Inventory rests at 868.66 tonnes
May 25./no change in gold inventory at the GLD/Inventory rests at 868.66 tonnes
MAY 24/ a good sized withdrawal of 3.86 tonnes of paper gold from the GLD/Inventory rests at 868.66 tonnes
May 23./this is rather impossible: another huge deposit of 3.26 tonnes into the GLD with the price of gold down again today?/inventory rests at 872.52 tonnes
May 20/what!!!A MONSTER DEPOSIT OF :8.92 TONNES OF GOLD INTO THE GLD INVENTORY/AND WITH GOLD DOWN $2.80??/INVENTORY RESTS AT 869.26
May 19/ANOTHER HUGE DEPOSIT OF 4.46 TONNES OF GOLD INTO THE GLD/iNVENTORY RESTS AT 860.34 TONNES
May 18 /no changes in inventory at the GLD/Inventory rests at 855.89 tonnes.
May 17/ we had a huge deposit of 4.76 tonnes of gold into the GLD/Inventory rests tonight at 855.89 tonnes/in the last two and 1/2 weeks we have added 50 tonnes of gold and this most likely was all paper gold addition..
May 16./ today we had no changes in inventory at the GLD/Inventory rests at 851.13 tonnes
May 13./another addition of 5.94 tonnes of gold into the GLD/Inventory rests at 851.13 tonnes
May 12/another huge deposit of 3.27 tonnes in gold inventory at the GLD/inventory rests at 845.19 tonnes
May 11/another huge deposit of 2.67 tonnes in gold inventory at the GLD/Inventory rests at 841.92 tonnes
May 10/Another huge deposit of 2.38 tonnes in gold inventory at the GLD/Inventory rests at 839.25 tonnes
May 9/Surprisingly we had another deposit of 2.68 tonnes of gold into the GLD with gold down!! Inventory 836.87 tonnes
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

May 26.:  inventory rests tonight at 868.52 tonnes

end

Now the SLV Inventory
May 26./ no change in silver inventory at the SLV/Inventory rests at 335.739 million oz
May 25./no change in silver inventory at the SLV/Inventory rests at 335.739
MAY 24/no change in inventory at the SLV/Inventory rests at 335.739 million oz
May 23./we had a small withdrawal of 285,000 oz and that generally means payment of fees.Inventory rests at 335.739 million oz
May 20/WE HAD A GOOD SIZED DEPOSIT OF 951,000 OZ INTO THE SLV/INVENTORY RESTS AT 336.024 MILLION OZ
May 19/no changes in silver inventory at the SLV/Inventory rests at 335.073 million oz
May 18/no changes in silver inventory at the SLV/Inventory rests at 335.073 million oz/
May 17/no change in silver inventory at the SLV/Inventory rests at 335.073 million oz/
May 16./no changes in silver inventory at the SLV/Inventory rests at 335.073 million oz
May 13./no change in silver inventory at the SLV/inventory rests at 335.073 million oz
May 12/no change in silver inventory/rests tonight at 335.073 million oz/
 May 11.2016/no change in silver inventory/rests tonight at 335.073 million oz/
May 10.2016/we had a huge withdrawal of 1.046 million oz in silver leaving the SLV,no doubt for Shanghai which lately has been gobbling up whatever inventory it could lay its hands on/Inventory rests at 335.073 million oz.
May 9. no change in silver inventory/rests at 336.119 million oz.
.
May 26.2016: Inventory 335.739 million oz
end

NPV for Sprott and Central Fund of Canada

will update on this site later tonight/

1. Central Fund of Canada: traded at Negative 5.0 percent to NAV usa funds and Negative 4.7% to NAV for Cdn funds!!!!
Percentage of fund in gold 61.8%
Percentage of fund in silver:36.8%
cash .+1.4%( May 25/2016). /no data today
2. Sprott silver fund (PSLV): Premium rises  to -0.14%!!!! NAV (MAY 26.2016) 
3. Sprott gold fund (PHYS): premium to NAV  rises TO +0.57% to NAV  ( MAY 26.2016)
Note: Sprott silver trust back  into NEGATIVE territory at -14% /Sprott physical gold trust is back into positive territory at +0.57%/Central fund of Canada’s is still in jail.
It looks like Eric Sprott got on the nerves of our bankers as they lowered the premium in silver to -0.14%.  Remember that Eric is to get 75 million dollars worth of silver in a new offering.
 
 
 

END

And now your overnight trading in gold,THURSDAY MORNING and also physical stories that may interest you:

Trading in gold and silver overnight in Asia and Europe
Mark O’Byrne (goldcore)

Gold Prices Should Rise Above $1,900/oz -“Get In Now!”

Gold prices are likely to rise above $1,900/oz in the next phase of the bull market and investors should “get in now,” Chief Market Analyst of the Lindsey Group, Peter Boockvar told CNBC’s “Futures Now” yesterday.

gold prices

“This is just the beginning of a new bull market in the metals,” Boockvar believes.

Ultimately, Boockvar believes that the 2011 highs of around $1,900 for gold are not only reachable, but surpassable, as he reasoned that bull markets historically exceed the previous bull market peak at some point.

As Boockvar sees it, it’s just a matter of when.

“In order to be bearish on gold, you have to believe that the Fed is going to embark on 100 to 200 basis points of hikes over the next couple of years, which I think is completely unrealistic,” added Boockvar. “This is an ideal opportunity for those who have not gotten in.”

Citing the relative strength index (RSI), Boockvar said that gold is the most oversold it has been since mid-December. He also added that global interest rates have given trillions of dollars’ worth of sovereign bonds a negative yield. Coupled with rising Fed rates, this development would theoretically provide gold investors with positive carry on gold. 

For additional context, Boockvar highlighted the mid-2000s, when the Fed raised the Federal funds rate from 1 percent to 5 percent. During that time, gold went from $400 to $700. The analyst also cited the start of 2016, when Bank of Japan Governor Haruhiko Kuroda adopted negative interest rates. However, the move failed to help the nation achieve stability in its currency.

Watch Boockvar’s interview on CNBC here

Recent Market Updates
– Gold and Silver “Bottom Is In” – David Morgan tells Max Keiser
– World’s Largest Asset Manager Suggests “Perfect Time” For Gold
– Gold As “Extremely Low-Risk Asset” – Rogoff Advises Creditor Nations
– Silver – “Best Precious Metals Trade”
– Bank Bail-Ins Pose Risks To Depositors, Investors & Economies
– Take Delivery of Gold and Silver Coins, Store Gold Bars – Hobbs
– George Soros Buying Gold ETF And Gold Shares In Q1

Gold and Silver News
Gold edges up, but stays near 7-wk low on Fed rate hike outlook – Reuters
Gold Snaps Six-Day Losing Streak as Rally in the Dollar Pauses – Bloomberg
Oil prices top $50, Asian shares struggle as China sags – Reuters
Pound Could Lose Its Reserve Currency Status on Brexit, S&P Warns – Bloomberg
Brexit Could Force UK to Extend Austerity by Two Years – Bloomberg

Greece’s “breakthrough” agreement is another “extend and pretend” – Telegraph
Why Strategas’ Chris Verrone Wants to Buy Gold (Video) – Bloomberg
Global Monetary System Has Devalued 47% Over The Last 10 Years – Zero Hedge
The Billionaires Are Wrong On Gold – Barisheff via Seeking Alpha
Dominick Frisby interviews James Rickards – Frisby’s Bulls & Bears
Read More Here

Gold Prices (LBMA AM)
26 May: USD 1,226.65, EUR 1,097.24 and GBP 834.37 per ounce
25 May: USD 1,220.75, EUR 1,094.77 and GBP 834.63 per ounce
24 May: USD 1,242.65, EUR 1,111.18 and GBP 852.71 per ounce
23 May: USD 1,250.40, EUR 1,115.84 and GBP 860.89 per ounce
20 May: USD 1,256.50, EUR 1,120.18 and GBP 862.75 per ounce

Silver Prices (LBMA)
26 May: USD 16.46, EUR 14.73 and GBP 11.20 per ounce
25 May: USD 16.21, EUR 14.54 and GBP 11.06 per ounce
24 May: USD 16.27, EUR 14.55 and GBP 11.14 per ounce
23 May: USD 16.31, EUR 14.55 and GBP 11.27 per ounce
20 May: USD 16.56, EUR 14.76 and GBP 11.35 per ounce

Protecting_Your_Savings_in_the_Coming_Bail_In_Era_-_Copy-3.jpg Storing_Gold_in_Switzerland 7_Key_Storage_Must_Haves.png

Read Our Most Popular Guides in Recent Months

Mark O’Byrne
Executive Director
end
Gold trading early this morning:
(courtesy zero hedge)

Sudden Dollar Dump Sparks Bond, Bullion Bid

It appears the weakness underlying the durable goods data is scaring the hawkish bid out of markets. 2Y yields are tumbling, the USD index is dropping, and gold is bid…

 

end

Miner Sees Silver Price Surging Ninefold as Global Gadgets Boom

http://www.bloomberg.com/news/articles/2016-05-26/miner-sees-silver-price-surging-ninefold-as-global-gadgets-boom

 

A major Japanese electronics maker approached First Majestic Silver Corp. for the first time last month seeking to lock in future stock, a sign of supply concerns that could boost the metal’s price ninefold, according to the best-performing producer of the metal.

 

 

“For an electronics manufacturer to come directly to us — that tells me something is changing in the market,” said Keith Neumeyer, chief executive officer of First Majestic, the top stock in Canada and among its global peers this year. “I think we’ll see three-digit silver,” he said, predicting the metal could surge to $140 an ounce by as early as 2019.

 

The Bloomberg article:

 

Miner Sees Silver Price Surging Ninefold as Global Gadgets Boom

Natalie Obiko Pearson

A major Japanese electronics maker approached First Majestic Silver Corp. for the first time last month seeking to lock in future stock, a sign of supply concerns that could boost the metal’s price ninefold, according to the best-performing producer of the metal.

“For an electronics manufacturer to come directly to us – – that tells me something is changing in the market,” said Keith Neumeyer, chief executive officer of First Majestic, the top stock in Canada and among its global peers this year. “I think we’ll see three-digit silver,” he said, predicting the metal could surge to $140 an ounce by as early as 2019.

That’s a bold forecast. While silver has rallied 19 percent this year to leapfrog gold as the best-performing precious metal, it settled lower Wednesday at $16.26 an ounce on the Comex in New York and reached a record of just under $50 in 2011. The highest projection among analysts surveyed by Bloomberg is $57 an ounce in 2019.

“That seems aggressive,” Dan Denbow, a portfolio manager at the USAA Precious Metals & Minerals Fund in San Antonio, said by e-mail. “There has been a lack of investment in silver exploration, but with significantly higher prices you will get new supplies. The current cost curve wouldn’t support that price.”

For recent projections on global silver production, click here.

Still, there are other optimistic signs for silver rising. Hedge funds expanded their bullish bets on the metal to an all- time high earlier this month. Because the commodity holds appeal both as a store of value as well as for its multiple industrial uses, it surged earlier this year on speculation that the pace of U.S. interest-rate hikes will slow and that Chinese manufacturing may be improving.

First Majestic is the second-biggest silver producer in Mexico, which supplies more of the precious metal than any other country. As such, the company has been a primary beneficiary of the silver rally after choosing not to diversify into other metals like many of its peers. The company earns more than 63 percent of its sales from silver and its share price has more than tripled this year, more than any other company on the S&P/TSX Composite Index. The stock rose 2.2 percent to C$14.65 at 9:51 a.m. in Toronto, giving it a market value of C$2.36 billion ($1.82 billion).

‘Strategic Metal’

While long coveted for use in jewelry, coins and utensils, silver is increasingly in demand for its industrial applications. Last year, about half of global silver consumption came from such use, including mobile phones, flat-panel TVs, solar panels and alloys and solders, according to data compiled by GFMS for the Washington-based Silver Institute.

“Silver is not a precious metal, it’s a strategic metal,” Neumeyer said in an interview in Vancouver, where the company is based. “Silver is the most electrically conductive material on the planet other than gold, and gold is too expensive to use in circuit boards, solar panels, electric cars. As we electrify the planet, we require more and more silver. There’s no substitute for it.”

For a Bloomberg Intelligence overview of the silver market, click here.

Industrial demand is set to increase, driven by rising incomes and growing penetration of technology in populous, developing nations, as well as thanks to new uses being found for silver’s anti-bacterial and reflective properties in everything from hospital paints to Band-Aids to windows.

“Over the next 10 or 20 years, more and more people are going to be using these devices, and silver is a very limited commodity,” Neumeyer said. “There’s just not a lot of it around.”

Use of silver, including investment demand, coin sales and what goes into inventories to settle trades, has outstripped annual supply of the metal in every year since 2000, according to data from GFMS, a research unit of Thomson Reuters Corp. Still, not everyone agrees that the world is headed for a shortage of the metal.

“I would tend to disagree that silver is rarer than thought,” David Lennox, a resource analyst at Fat Prophets in Sydney. “Silver cannot be easily substituted but there’s been no need as it’s in abundance. I’d expect the search for silver would intensify and the search for substitutions would happen long before silver got to” $140 an ounce.

‘Market Penetration’

About 50 percent of global demand last year came from price-sensitive sources such as retail coins, jewelry and silverware, which would help curb price increases, said Erica Rannestad, a senior analyst at GFMS in Chicago. “Increased market penetration in emerging economies certainly will result in higher per-capita consumption of silver in industrial uses, but this is over the long run and would not happen overnight.”

Neumeyer said his company has no immediate plans for acquisitions, dividends or to take on any debt. The company raised C$57.5 million from a share sale earlier this month. It plans to use funds internally for development and exploration of its mines, which had suffered from underinvestment during the recent downturn. “The capital will be used to look internally,” he said.

Neumeyer acknowledges his forecasts aren’t always correct. First Majestic had estimated silver at $14 an ounce for this year’s budget. “I think I’ve been wrong every year for the past four or five years.”

Still, he’s unfazed by his past record.

“The silver rally is just beginning,” Neumeyer says. “What we’ve seen in the last two months is just the beginning of the next bull market.”

-END-

 

 

A great graphic of the London Gold Market and where gold is stored.  This is a repat from two weeks ago but it is worth repeating.
(courtesy Bullion star/Ronan Manly)

An Inside Look at the World’s Biggest Paper Gold Market

Every day, there are a whopping 5,500 tonnes ($212 billion) of gold traded in London, making it the largest wholesale and over-the-counter (OTC) market for gold in the world.

To put that in perspective, Visual Capitalist’s Jeff Desjardins notes that  more gold is traded in London each day than what is stored at Fort Knox (4,176 tonnes). On a higher volume day, amounts closer to total U.S. gold reserves (8,133.5 tonnes) can change hands.

How is this possible?

The infographic below tells the story about gold’s foremost trading hub, as well as the paper gold market in London, England:

Courtesy of: Visual Capitalist

London is dominant in global price discovery for gold.

In 2015, it accounted for roughly 88% of gold trade – most of which occurs between banks on behalf of their clients. Further, 90% of London trade is spot trading, which further emphasizes London’s importance in price discovery for gold markets.

While the high-level details of the market are visible, the individual mechanisms behind the London gold trade are less clear.There is very little detailed information provided on physical shipments, outstanding gold deposits or loans, allocated or unallocated gold, or clientele types. Trade reporting also breaks down at a more granular level, and datasets on the GOFO (Gold Forward Offered Rate) were also discontinued in January, 2015.

Almost all gold (95%) traded in London is unallocated and without legal title. This makes it easier to trade, but it also raises concerns about a market that is opaque to begin with. There are 5,500 tonnes of paper gold exchanging hands on paper each day, but there are only 300 tonnes of gold vaulted in London outside of the reserves for ETFs or the Bank of England.

What would happen if there was ever even a small rush to get the physical asset behind the paper? Is there a system in place for such an event, and how does it work?

Original graphic by: BullionStar

END
Nick Barisheff cannot figure out why billionaires are buying ETF’s like GLD which probably has no gold and not buying his bulllion fund which is 100% allocated like Central Fund and Sprott
(courtesy  GATA/Barisheff)

Nick Barisheff: The billionaires are wrong on gold

Section:

8p ET Wednesday, May 25, 2016

Dear Friend of GATA and Gold:

Nick Barisheff, founder of Bullion Management Group in Markham, Ontario, today laments that some prominent billionaires who advocate gold ownership have put their money not into real metal but into shares of exchange-traded funds whose claim to metal is dodgy at best. Barisheff’s commentary is headlined “The Billionaires Are Wrong on Gold” and it’s posted at Bullion Management Group’s Internet site here:

http://bmgbullion.com/billionaires-are-wrong-on-gold/

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
CPowell@GATA.org

 

END

Your early THURSDAY morning currency, Asian stock market results,  important USA/Asian currency crosses, gold/silver pricing overnight along with the price of oil Major stories overnight

 
 

:

1 Chinese yuan vs USA dollar/yuan  UP to 6.5576 ( SLIGHT REVALUATION  BUT TINY/CHINA CONTINUES TO FIRE SHOTS ACROSS THE USA BOW/OFFSHORE YUAN NARROWS TO 6.5615 ) / Shanghai bourse  CLOSED UP 7.37 OR 0.26%  / HANG SANG CLOSED UP 29.06 OR 0.14%

2 Nikkei closed UP 15.11 OR 0.09% /USA: YEN FALLS TO 109.99

3. Europe stocks opened MOSTLY IN THE GREEN  /USA dollar index DOWN to 95.15/Euro UP to 1.1182

3b Japan 10 year bond yield: FALLS   TO -.112%     !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 109.99

3c Nikkei now WELL BELOW 17,000

3d USA/Yen rate now well below the important 120 barrier this morning

3e WTI::  49.85  and Brent: 50.11

3f Gold UP  /Yen UP

3g Japan is to buy the equivalent of 108 billion uSA dollars worth of bond per month or $1.3 trillion. Japan’s GDP equals 5 trillion usa.

Japan to buy 100% of all new Japanese debt and by 2018 they will have 25% of all Japanese debt. Fifty percent of Japanese budget financed with debt.

3h Oil UP for WTI and UP for Brent this morning

3i European bond buying continues to push yields lower on all fronts in the EMU. German 10 yr bund FALLS to 0.159%   German bunds in negative yields from 8 years out

 Greece  sees its 2 year rate FALL to 7.29%/: 

3j Greek 10 year bond yield RISE to  : 7.17%   (YIELD CURVE NOW FLAT)

3k Gold at $1229.20/silver $16.49(7:45 am est) BROKE RESISTANCE AT 16.52 

3l USA vs Russian rouble; (Russian rouble UP 23 in  roubles/dollar) 65.15-

3m oil into the 49 dollar handle for WTI and 49 handle for Brent/

3n Higher foreign deposits out of China sees huge risk of outflows and a currency depreciation  (already upon us). This can spell financial disaster for the rest of the world/China forced to do QE!! as it lowers its yuan value to the dollar/expect a huge devaluation imminently from POBC.

JAPAN ON JAN 29.2016 INITIATES NIRP. THIS MORNING THEY SIGNAL THEY MAY END NIRP. TODAY THE USA/YEN TRADES TO 109.08 DESTROYING WHATEVER IS LEFT OF OUR YEN CARRY TRADERS

30 SNB (Swiss National Bank) still intervening again in the markets driving down the SF. It is not working: USA/SF this morning .9910 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.1081 well above the floor set by the Swiss Finance Minister. Thomas Jordan, chief of the Swiss National Bank continues to purchase euros trying to lower value of the Swiss Franc.

3p BRITAIN IN LAST LEG OF ITS CAMPAIGN AS TO WHETHER EXIT THE EU.

3r the 8 Year German bund now  in negative territory with the 10 year FALLS to  + .159%

/German 8 year rate negative%!!!

3s The Greece ELA NOW a 71.4 billion euros,

The bank withdrawals were causing massive hardship to the Greek bank. the Greek referendum voted overwhelming “NO”.  Next step for Greece will be the recapitalization of the banks and that will be difficult.

4. USA 10 year treasury bond at 1.866% early this morning. Thirty year rate  at 2.664% /POLICY ERROR)

5. Details Ransquawk, Bloomberg, Deutsche bank/Jim Reid.

(courtesy Jim Reid/Bloomberg/Deutsche bank/zero hedge)

end

Futures Levitation Continues As Brent Rises Above $50 For First Time Since November

In what has been another quiet overnight session, which unlike the past two days has not seen steep, illiquid gaps higher in US equity futures (the E-mini was up 3 points and accelerating to the upside as of this writing so there is still ample time for the momentum algos to go berserk), the main event was the price of Brent rising above $50 for the first time since November with WTI rising as high as $49.97.

As shown in the chart below, Brent crude surpassed $50 a barrel for the first time since November, lifting commodity companies and buoying currencies where oil is produced.

A drop in U.S. stockpiles and shrinking output in Nigeria and Venezuela contributed to the gains in Brent, which is up more than 80 percent from January’s low of $27.10. The Bloomberg Commodity Index rose to the highest in a week as metals also advanced, and miners in the Stoxx Europe 600 Index headed for their biggest three-day jump in more than a month.

Brent is recovering after tumbling to a 12-year low in January. Now, the International Energy Agency and Goldman Sachs Group Inc. say a glut is dissipating as low prices take their toll on supplies. That may leave prices high enough to alleviate the threat of deflation and still low enough that they don’t impinge on economic growth. “It could well be that we have arrived at a ‘sweet spot’ — low enough to support consumers and curtail industry job cuts, but not high enough to rile central banks and bond markets.” said Michael Ingram, a market strategist at BGC Partners.

Well, if US consumers didn’t benefit from low oil, they sure will benefit from higher “sweet spot” soil, supposedly.

As for markets, even the bulls are looking for an end to the latest torrid short squeeze: “It’s to be expected after the gains we’ve seen this week,” said Michael Hewson, a market analyst at CMC Markets in London. “The real test is whether or not we can sustain the gains of the last two days. There is a lack of conviction on the part of investors with respect to the overall direction of European stocks. I don’t see where that catalyst is coming from at the moment.”

And yet, the levitation continues, driven by hope that Yellen will give some further indication of what the Fed will do tomorrow when she speaks at Harvard. And, much to Jeff Gundlach’s dismay, the narrative has again shifted to “rate hikes are bullish” in a market which can’t remember what happened even 5 months ago. “Markets are now more accepting of a U.S. rate increase,” said Mitsushige Akino, a Tokyo-based executive officer at Ichiyoshi Asset Management Co. “The thought is that an increase won’t stop the U.S. economy from growing, but if the global economy slows, they have the means to change their policy.”

Also notable was the drop in European peripheral bank shares after
Spain’s Banco Popular tumbled 20% on a €2BN share sale. As a result Spain’s benchmark IBEX 35 Index was the biggest decliner among western-European markets. World equities were little changed after the MSCI All-Country World
Index staged a 2 percent recovery in the previous two days after weeks
of stagnation. The Stoxx 600 was unchanged after its biggest two-day jump in three months. Futures on the S&P 500 were up 0.1%

The U.S. has durable goods orders data for April due as well as weekly jobless claims figures. In addition, leaders from the Group of Seven nations are meeting in Japan to discuss topics including economic policy, climate change and boosting infrastructure investment.

Market Wrap

  • S&P 500 futures up than 0.1% to 2090
  • Stoxx 600 down 0.1% to 348
  • FTSE 100 up less than 0.1% to 6267
  • DAX up 0.2% to 10226
  • S&P GSCI Index up 0.4% to 372.3
  • MSCI Asia Pacific up 0.3% to 127
  • Nikkei 225 up less than 0.1% to 16772
  • Hang Seng up 0.1% to 20397
  • Shanghai Composite up 0.3% to 2822
  • S&P/ASX 200 up 0.3% to 5388
  • US 10-yr yield down less than 1bp to 1.86%
  • German 10Yr yield up less than 1bp to 0.16%
  • Italian 10Yr yield up less than 1bp to 1.36%
  • Spanish 10Yr yield up 2bps to 1.49%
  • Dollar Index down 0.15% to 95.21
  • WTI Crude futures up 0.5% to $49.83
  • Brent Futures up 0.6% to $50.02
  • Gold spot up 0.3% to $1,228
  • Silver spot up 0.5% to $16.40

Top Global News

  • Lenovo Profit Misses Estimates as Motorola Smartphones Struggle
  • UniCredit Said to Seek Buyers for $838 Million of Bad Loans
  • Ubisoft Said to Seek White Knight to Fend Off Vivendi Approach
  • Abe Warns G-7 Leaders of Risk of Lehman-Scale Economic Crisis
  • Qatar Stuns Mideast Debt Market With Record $9 Billion Bond
  • Hedge Funds May Lose 25% of Assets, Blackstone’s James Says

Looking at regional markets, Asian equities traded in modest positive territory underpinned by the continued oil increase. ASX 200 (+0.3%) was supported by the fresh YTD highs in crude futures in which Brent rose above USD 50/bbl, but the index then pared most of its advances following mixed Capex data. Nikkei 225 (+0.1%) is also positive although off its best levels as JPY strength clouds sentiment. Elsewhere, the Shanghai Comp (+0.3%) underperformed for much of Asian trade amid debt and financial sector concerns, as brokerages are seen to suffer from weaker activity, however did see a turnaround late on to conform with its counterparts.  This morning has seen thin volumes from a fixed income perspective with Bunds relatively flat for the session as some participants observe the Corpus Christi holiday while some remain on the side lines until the conclusion of the G7 summit. Additionally, the persistent upside in crude prices have weighed on the long end, subsequently reversing some of the bull flattening seen yesterday.

Top Asian News

  • India Said to Require Local Sourcing by Apple to Open Stores: Minister said to rule Apple must comply with sourcing rules
  • Macau Economy Seen at Risk as Moody’s Downgrades Gaming Hub: Agency expects Macau GDP to continue shrinking in 2016, 2017
  • New Zealand Leaves Door Open to Tax Cuts as Budget Surplus Grows: Govt forecasts 2016-2017 budget surplus of NZ$719m
  • Takata Said to Hold Talks With Possible Buyers Including KKR: Shares surged by daily limit after earlier report by Nikkei
  • One Year After Bubble Burst, China’s Stock Market Has Gone Quiet: Volatility on the Shanghai Composite is lowest since 2014

European equities trade in mixed fashion with the Euro Stoxx 50 (+0.1%) modestly higher. Notable underperformance has been observed in periphery banks, particularly the Spanish banking sector after Banco Popular (-20%) reported that they are seeking to raise EUR 2Bn through a share sale. Elsewhere, energy and material names have been among the best peroformers amid the upside in the commodity complex with Brent crude futures continuing to hover around YTD highs to remain above USD 50/bbl, while WTI crude trades slightly south of that mark having earlier reached a high of USD 49.95/bbl.

Top European News

  • Europe’s Troubles Pile Up at Home as Leaders Cross Globe for G-7: Cameron, Merkel, Renzi and Hollande facing domestic challenges. Brexit to French strikes, refugees and elections occupy voters
  • Podemos Wants to Talk to Investors About Easing Spain’s Debt: Anti-establishment group wants longer duration, lower interest. Party seeking alliance with Socialists after June election
  • VW Says Bonds Meet ECB Purchase Criteria Ahead of Market Return: Potential for ECB acquisitions ‘can only be good’ for carmaker. Company shut out of debt market following emissions scandal
  • French Strikes Intensify as Government Holds Firm on Labor Law: CGT Union ‘doesn’t make the law,’ Prime Minister Valls Says. Unions split over protest as business warns of slowdown
  • Telecom Italia Approves $45 Million Incentive Plan for CEO: Payout tied to turnaround plan for former phone monopoly. Two months into job, Cattaneo almost tripled cost-cut goals

In FX, the yen strengthened 0.2 percent. The Bloomberg Dollar Spot Index declined 0.2 percent following a 0.2 percent drop in the last session. The MSCI Emerging Markets Currency Index rose 0.2 percent, led by
currencies from commodity-producing countries. Russia’s ruble climbed
for a third day, advancing 0.4 percent. Higher oil prices supported the Norwegian krone, which rose 0.9 percent versus the greenback, and Malaysia’s ringgit, which advanced 0.5 percent.   A measure of volatility in the pound versus the dollar covering the period when the result of the referendum on European Union membership will be known jumped to its highest level in six years. The pound was little changed. The kiwi touched its weakest level since March after Fonterra Cooperative Group Ltd., the world’s largest dairy exporter and New Zealand’s biggest company, forecast a lower-than-expected payout to its farmer shareholders.

In commodities, Brent crude rose 0.3% at $50.06 a barrel at 10:39 a.m. in London and West Texas Intermediate climbed as high as $49.97 before retreating modestly.Bloomberg’s index of commodity returns gained 0.5 percent, rising for a second day. U.S. inventories slid by 4.23 million barrels last week, exceeding an expected drop of 2 million barrels. Attacks in Nigeria have cut production to a 20-year low and Venezuela is struggling to maintain output amid power cuts. Producers in Canada are beginning to restart oil-sands operations halted by wildfires.

French power for delivery in June climbed as much as 3.4 percent to 25.70 euros a megawatt-hour, the highest price since March 31, as a strike that has halted refineries across the nation spread to nuclear power plants. Output at 11 reactors operated by Electricite de France SA was reduced by the protests against a new labor law. Copper advanced 0.8 percent to $4,691 a metric ton, a third day of gains. The metal used in wires and cables is heading for the first weekly gain this month. Nickel added 0.6 percent and zinc rose 1.9 percent. Gold halted six days of losses to rebound from the lowest level in seven weeks as a rally in the dollar paused.

In the US, the big focus will be on the durable and capital goods orders for April. Current expectations are for a +0.5% mom in headline durable goods and +0.3% mom in core capex orders. Elsewhere, also due to be released this afternoon will be pending home sales for April which is expected to continue the run of strong housing market data, while last week’s initial jobless claims data will also be released (275k expected). The calendar will be rounded off with some more regional manufacturing data in the form of the Kansas City Fed’s manufacturing activity index. Fedspeak wise today we’ve got Bullard (at 6.10am) speaking at an event in Singapore, while Powell (at 12pm) is due to talk on ‘recent economic developments and monetary policy’.

Bulletin Headine Summary From Bloomberg and RanSquawk

  • Underperformance observed in periphery banks after Banco Popular shares fall over 20% as they seek a EUR 2bIn share sale.
  • GBP pares gains following downward revisions in the UK GBP Y/Y reading, while commodity linked currencies remain firm amid the persistent upside in crude prices.
  • Later in the day we will be looking out for US Pending Home Sales, Durable Goods Orders and Initial Jobless Claims
  • Treasuries slightly higher along with global equities as crude oil flirts with $50 a barrel mark; week’s auctions conclude with $28b 7Y notes, WI yield 1.68%, compares with 1.634% awarded in April.
  • Japanese PM Shinzo Abe presented documents to his fellow G-7 leaders Thursday that he said indicated a risk of the world economy falling into a crisis on the scale of the 2008 Lehman shock if appropriate policy measures weren’t taken
  • Qatar sold $9 billion of Eurobonds on Wednesday, helping push 2016 offerings from the Middle East and North Africa to $29.3 billion, a record for the first half of a year
  • Bill Gross said he is moving to sell credit risk and insurance on market volatility rather than buying long-term debt, because he believes a day of reckoning will come when central banks will no longer be able to prop up asset prices
  • U.S. billionaire Wilbur Ross said he’s considering investing in nonperforming loans in China, as Moody’s Investors Service said that the nation has the tools to prevent a financial crisis in the near term
  • Spanish consumer strength boosted by job creation helped maintain growth momentum in the first quarter as the nation grappled with political deadlock. Household consumption rose 0.9% from the previous three months
  • Sovereign 10Y yields mixed; European, Asian equities higher; U.S. equity-index futures rise; WTI crude oil higher, precious metals rally

DB’s Jim Reid concludes the overnight wrap

At the moment the Fed look like they have super powers. A week on from a hawkish set of FOMC minutes one would have to say that they have won the first round in the fight to raise rates in June or July. We’re still not convinced they’ll be able to and it seems reasonable to expect tougher rounds in the battle ahead but it’s worth highlighting the performance of a few global variables since just before the minutes were released last Wednesday night. Indeed, looking firstly at the moves in the US, the S&P 500 is up +1.62% from the moment just prior to the minutes despite what was an initial 24 hours of weakening, while the S&P 500 Banks sector has outperformed the wider equity index with a +3.34% gain. Meanwhile the US Dollar index has strengthened +0.81% and 2y and 10y Treasury yields are 7bps and 5bps higher respectively. Of course in that time we’ve also seen the probability of a June rate hike move from 12% to 34% and a July hike move from 28% to 54%.

Interestingly moves in Europe have actually been more impressive although the positive developments around Greece and the ECB commentary concerning banks has largely fuelled that, along with the weaker Euro (-1.21%). The Stoxx 600 is +3.26%, DAX +2.64% and Spanish and Italian equities are +3.96% and +2.77% (although we’d stress that much of this has come in the last two days) while Stoxx 600 Banks are up an impressive +7.24%. Emerging markets have been the obvious laggard with the MSCI EM equity index down -0.86%. WTI Oil (+0.38%) initially tumbled with the strength in the USD from $49.50/bbl to a low of $47.26/bbl, but has recovered all of that loss and a little more to test that $50/bbl mark again. Unsurprisingly it’s Gold (-3.90%) which is the main underperformer.

So you have to imagine that moves in the last week or so will be of reasonable comfort to the Fed. The last 48 hours in particular has been a strong one for risk assets with indices yesterday including the S&P 500 (+0.70%), Dow (+0.82%), Stoxx 600 (+1.29%) and DAX (+1.47%) all rallying again. Banks were again at the forefront of the moves although this time it was energy stocks which led all other sectors as both WTI and Brent edged closer and closer to the elusive $50/bbl level. This morning in fact has seen Brent just tip over that mark, currently hovering around $50.10/bbl and it’s managed to hold above $50/bbl for a couple of hours or so now. The move has been helped by the latest EIA stockpile data, along with a slightly weaker US Dollar which fuelled yesterday’s gains. Indeed crude stockpiles were reported as falling 4.2m barrels last week with the WSJ journal highlighting that a poll showed that ‘just’ a 2.5m decrease was expected. At the same time US output was also reported as falling for an 11th consecutive week. It wasn’t just equities which benefited from the move as credit markets also extended their strong run of gains. In Europe we saw the iTraxx Main and Crossover indices end 3bps and 12bps tighter while in the US CDX IG was 2.5bps tighter, meaning it is nearly 7bps tighter this week alone which compares to the S&P 500 which is just shy of 2% firmer. It’s also worth noting that all of a sudden US HY energy cash spreads are 18bps tighter in the last three sessions and 72bps tighter in the month of May. They are currently hovering around 904bps in spread terms which compares to the wides in spread of 1932bps back in February.

Back to markets and despite the positive lead from the US last night and the moves for Oil, it’s been a bit of a mixed start for equity bourses in Asia this morning. Japanese equities are shrugging off a reasonable strengthening in the Yen (+0.5%) to post modest gains (Nikkei +0.29%). Elsewhere the ASX and Kospi are flat, however the Hang Seng (-0.23%) and Shanghai Comp (-0.90%) have weakened despite minimal newsflow. Meanwhile we’re seeing decent gains for Oil-sensitive currencies (Norwegian Krone leading the way) while US equity index futures are modestly in the red.

Moving on. Yesterday’s economic data was a bit of a mixed bag across the pond. The advance goods trade balance for April showed a very modest widening in the deficit to $57.5bn from $57.1bn although expectations had been for a widening to $60bn. While imports rose as expected (by +1.9% mom), the surprise was the +2.4% mom increase in exports which will be seen as positive for Q2 GDP. Meanwhile the remainder of the flash May PMI’s were released too, with the services reading (51.2 vs. 53.0 expected) disappointing after declining 1.6pts from April. When combined with the manufacturing data earlier in the week, the flash composite print of 50.8 is also down 1.6pts from April. The only other data of note in the US yesterday was the FHFA house price index which was reported as increasing a higher than expected +0.7% mom in March.

Over in Europe the highlight was the better than expected German IFO survey for May. The business climate reading was up a full point from April to 107.7 (vs. 106.8 expected) thanks to similar gains in the current assessment (+1pt to 114.2) and expectations (+1.1pts to 101.6) components. This means that the business climate reading has now made up more than half of the decline it had seen from November (109.1) to February (105.8). Our economists in Europe noted that the data supports their expectation that GDP growth should bounce back in Q3 (they expect +0.5% qoq) after a weak Q2 (+0.1% qoq expected) that is impacted by seasonal factors and one-offs.

Staying in Europe and a bit more on the Greece announcement 24 hours ago. Most will have seen the details by now, with the €10bn disbursement having been approved with the first tranche due to be delivered in June, as well as the commitment for future debt relief in 2018. What appears to be more debated however is the IMF’s participation in all of this. While the Fund stated that it is willing to continue participating financially in the program, the decisions will be taken by the ‘end of this year’ subject to an ‘updated debt sustainability analysis’. As DB’s George Saravelos pointed out, the key muddle through aspect of the agreement is the fact that the IMF has managed to delay participation by another six months, so the ambiguity on whether the IMF ends up participating remains. Indeed the IMF’s main negotiator at the talks, Paul Thomsen, said that ‘we will need to assess the adequacy of the measures, and we will only go ahead if there is an assessment that they are adequate’. That said, yesterday’s announcement is still very much significant progress and keeps Greece on a familiar track of year-by-year deal making.
Before we look at today’s calendar, the latest stop on the Fedspeak tour saw Dallas Fed President Kaplan (moderately hawkish usually) say that should the economic data keep going the way it is then ‘I will advocate for an increase in the near future’. He also said that his view was unchanged relative to that in March when he indicated that two hikes this year could be appropriate. Kaplan refused to comment specifically on timing but did make mention of the UK EU referendum as representing ‘some amount of tail risk’.

Turning now to the day ahead, this morning in Europe the main highlight is the second reading for Q1 GDP in the UK where no change from the initial +0.4% qoq estimate is expected. Over in the US the big focus will be on the durable and capital goods orders for April. Current expectations are for a +0.5% mom in headline durable goods and +0.3% mom in core capex orders. Our US economists are more optimistic and are looking for a +1.0% mom rise in headline durable orders which should be propped up by Boeing orders. They do however expect ex-transportation orders to be flat for the month continuing the trend of weak business investment. Elsewhere, also due to be released this afternoon will be pending home sales for April which is expected to continue the run of strong housing market data, while last week’s initial jobless claims data will also be released (275k expected).

END

ASIAN AFFAIRS

i)Late  WEDNESDAY night/ THURSDAY morning: Shanghai closed UP  BY 7.37 PTS OR 0.26%  /  Hang Sang closed UP 29.06 OR 0.14%. The Nikkei closed UP 15.11 POINTS OR 0.09% . Australia’s all ordinaires  CLOSED UP 0.29% Chinese yuan (ONSHORE) closed UP at 6.5576 .  Oil ROSE to 49.88 dollars per barrel for WTI and 50.15 for Brent. Stocks in Europe MOSTLY IN THE GREEN . Offshore yuan trades  6.5611 yuan to the dollar vs 6.5576 for onshore yuan.THE SPREAD BETWEEN ONSHORE AND OFFSHORE WIDENS A BIT.

FIRST  REPORT ON JAPAN  SOUTH KOREA AND CHINA

a) JAPAN ISSUES

 

From Reuters:

The all important Tankan manufacturing sentiment was released and it was at a 3 year low:

 “Tankan manufacturing sentiment at three-year low: The Reuters Tankan sentiment index for manufacturers fell to 2 in May from 10 in April, driven by exporting industries, with the survey projection pointing to 5 in August. According to the report, the service sector index fell to 19 in May from 23 in April, weighed by retailers, while the survey projection points to 18 in August. The story attributes the decline to the rising yen’s impact on exporters as well as domestic demand via tourism spending”

b) REPORT ON CHINA

Here are some comments on what will happen inside China. I strongly believe that the correct response is Daiwa.

The author believes that the yuan will fall to 7.5 to the dollar, something that Kyle Bass and Soc Gen agree.  They believe that the FX reserves will fall to below 2 trillion dollars in 2 years.

(courtesy Daiwa/zero hedge)

 

Daiwa: “Round Two Of China Capital Outflows Is About To Begin”

Now that all eyes have turned on China eager to find how it will react to a potential Fed rate hike in June or July, the question is whether the sharp Chinese devaluation unveiled overnight, which sent the Yuan to fresh 5 year lows, will be a one-off event, and whether the PBOC will intervene far more aggressively in the offshore CNY market to keep FX market turmoil to a minimum.

According to at least one person, the answer is no.

As Kevin Lai, HK-based chief economist of Asia ex-Japan at Daiwa Capital Markets writes in note released overnight, round two of China capital outflows is about to begin, if second half last year was considered the first round.

This is what he believes will happen next:

  • China’s FX reserves may fall below $2t in about a year
  • Downward pressure on FX reserves is most likely to be underestimated as short-term speculative flows are far more ready to leave than real flows
  • Based on estimates, about 49% of PBOC’s FX reserves are made up of flows which are speculative and short-term in nature
  • Expects decline in FX reserves to be more rapid in next 24 months at least
  • Look for further $500b decline to $2.7t by end-2016 and a further $900b decline to $1.7t by end-2017
  • If companies, especially SOEs, face trouble paying back creditors, central government would bail them out
  • Massive bailouts would require government’s monetary policy to turn a lot more aggressive, putting more pressure on yuan
  • Policymakers would have to seriously think about letting CNY slide gradually to a better equilibrium level

His conclusion: the USD/CNY will hit 7.50 by end-2016, some 15% higher than where it is now.

* * *

Others currency strategists were somewhat more sanguine on what happens in China next. Here are several sellside opinions, via Bloomberg:

HSBC (Wang Ju, senior FX strategist)

  • PBOC has found a “good time window” to weaken yuan, with risk appetite supportive, volatility low and credit spread tight
  • Momentum on EM is boosted by gains in equity markets in U.S. and Europe
  • PBOC will stop CNY falling if see pressure spread across Asian assets
  • Narrower CNH-CNY spread is policy-makers’ target; NOTE: Gap now only around 50 pips
  • USD/CNY may rally near term, reaching 6.6 vs dollar end-2Q

Rabobank (Michael Every, head of financial markets research)

  • Weaker fixing is a delayed catch-up by PBOC as other Asian currencies have dropped in recent days on increasingly hawkish Fed
  • China pegging yuan to USD can’t last
  • FX intervention may be going on to “convince” market not to worry despite weaker fixing
  • Forecasts USD/CNY at 7.10 by yr-end

Mizuho Bank (Ken Cheung, Asian FX strategist)

  • Weaker yuan fixing today shows PBOC is allowing currency to decline at gradual pace vs USD
  • Fixing largely in line with expectations

Standard Chartered (Eddie Cheung, Asia FX strategist)

  • CNY fixing is a natural reaction to dollar strength overnight
  • Buoyant global equity markets indicate risk-on attitude
  • Yuan reference rate could have been weakened even further

Saxo Capital Markets (Kay Van-Petersen, global macro strategist)

  • Markets are calm now but there is serious risk of selloff with Fed rate hikes potentially on horizon
  • Better for PBOC to be proactive in devaluing yuan now rather than being forced by market to do so later
  • If China opens bond market and improves transparency and rule of law, could attract a lot of capital, offsetting outflows

One thing is clear as DB confirmed earlier today: the fate of the June rate hike is now in the hands of China.

end

 

Late this afternoon we get word that the USA will add a huge 450% anti dumping duties on corrosion resistant steel.  China is absolutely furious!

 

(courtesy zero hedge)

 

Furious China Slams “Irrational” US Trade War, Warns “Will Take Steps”

The main reason stocks in the steel sector are on fire today is because overnight the Commerce Department escalated its trade war with China when it implemented the latest clampdown on a glut of steel imports, when it announced that corrosion-resistant steel from China will face final U.S. anti-dumping and anti-subsidy duties of up to 450%. The final U.S. anti-dumping duties on the Chinese products replace preliminary ones of 256% issued in December 2015.

The department also issued anti-dumping duties of 3 percent to 92 percent on producers of corrosion-resistant steel in Italy, India, South Korea and Taiwan.

The duty hit producers of the flat-rolled steel, which is coated or plated with zinc, aluminum or other metals to extend its service life, with anti-subsidy duties in China, South Korea, Italy and India. Taiwan was exempted.

This follow last week’s 522% duty imposed by the US on cold-rolled steel imports from China used in automobiles and other manufacturing, which led to the latest angry rebuke from Beijing: “There’s too much trade friction and it’s not good for the market,” Liu Zhenjiang, secretary general of the China Iron and Steel Association told Reuters when asked if China will appeal U.S. anti-dumping duties at the World Trade Organization. “High taxes are unfair …. China doesn’t have a large market share in the United States,” Zhang Dianbo, deputy general manager at Baosteel Group, said recently during a Singapore conference.

Fast forward to today when China escalated the war of words.

Cited by Reuters, China’s Commerce Ministry said it was extremely dissatisfied at what it called the “irrational” move by the United States, which it said would harm cooperation between the two countries.

China will take all necessary steps to strive for fair treatment and to protect the companies’ rights,” it said, without elaborating.

An employee talks on his mobile phone near stacks of rebar at
Shanxi Zhongsheng Iron and Steel in Fenyang, Shanxi Province

China has come under increasing fire from industrialized countries worldwide that have accused it of dumping steel at prices far below production costs to avoid cutting excess capacity in the sector, which faces slowing demand at home.

Beijing has insisted that it would eliminate 100 million to 150 million tons of annual capacity and said last week it would persist with a steel tax rebate plan to support the sector’s restructuring; it has so far failed to do that and instead as a result of the recent credit deluge Chinese production and exports have soared.

The increasingly more noisy steel trade war has grown into a major irritant as senior U.S. and Chinese officials prepare for bilateral economic and foreign policy meetings in Beijing in early June.

A laborer marks steel bars at a steel factory in Huai’an, Jiangsu province

What is more notable in this escalating war of both words and trade duties is that it comes at a time when none other than China has right of first refusal to hinder the Fed’s rate hiking intentions (if indeed such exist). As Deutsche Bank explained yesterday, a rate hike in June or July will be up to China: should the Yuan proceed to slide in a repeat of what happened in August and December, the Fed may be forced to postpone its rate hike once again.

* * *

Meanwhile, the US shows no relent in its trade war with China: the Commerce Department issued anti-dumping duties of 210% on all Chinese-produced corrosion resistant steel. Final anti-subsidy duties ranged from 39 % for many producers to 241% for some of the largest ones including Baosteel, Hebei Iron & Steel Group and Angang Group.

Life for China’s exporters is only going to get more difficult: the European Union launched its own investigation of Chinese steel exports two  weeks ago following protests by steelworkers. In Britain, Tata Steel cited low-cost Chinese competition when it announced plans last month to sell money-losing operations that employ 20,000 people.

And just to assure that this is nowhere near the end of the ongoing trade wars, China pushed back against its trading partners in April, announcing anti-dumping duties on steel from the European Union, Japan and South Korea.

Will China merge its ongoing trade war with the just as violent currency war which prevented the Fed from hiking rates so far in 2016, when the tumbling Yuan resulted in two separate S&P500 swoons? The answer will be made apparent with every CNY fixing over the next month and the PBOC’s subsequent intervention in the offshore CNY market. What makes this particular reaction by China especially interesting is that it comes in the aftermath of the Shanghai Accord: will the tentative agreement ironed out between the central banks to not create too much FX volatility be respected, or will China do what the US has been warning Japan against for the past month, and proceed by breaching the ongoing currency ceasfire?

Average:

EUROPEAN AFFAIRS

Spain’s 7th largest bank Banco Popular saw its shares plummet by 20% as there is a new rights offering trying to shore up its balance sheet.  The bank now must issue over 2 billion of new shares.  The low interest environment is killing this bank along with all of the others:

(courtesy Business Recorder and special thanks to Mark. W for sending this to me)

 

 

BANCO POPULAR SHARES DIVE ON CASH CALL

imageMADRID: Shares in Spanish bank Banco Popular lost over a fifth of their value Thursday after the bank asked shareholders to stump up more cash to clear up its balance sheet.

In a rights issue worth 2.5 billion euros ($2.8 billion), the bank will create over two billion new shares at 1.25 euros between May 28 and June 11, it said in a regulatory filing. The bank’s stock closed at 2.36 euros on Wednesday.

“With this operation Popular will strengthen its balance sheet and improve its profitability as well as its solvency and the quality of its assets,” the lender said in a statement.

In a rights issue, a company asks existing shareholders to buy new stock, diluting the value of existing shares in the process.

In response, shares in Banco Popular, Spain’s seventh largest bank by market value, fell by 20.25 percent to 1.88 euros in mid-morning trade on the Spanish stock exchange.

Like its Spanish rivals, Banco Popular is dealing with low interest which have hurt margins while it seeks to reduce the burden of failed real estate assets after a decade-long property bubble burst in 2008.

The lender has shifted its focus in recent years to lending to small and medium sized businesses and well as consumers.

The rights issue will allow the lender to boost its capital level-under international regulations known as “fully loaded” Basel III criteria-to more than 10.8 percent by the end of this year, the bank said.

 

end

Copyright AFP (Agence France-Presse), 2016

 

RUSSIAN AND MIDDLE EASTERN AFFAIRS

Saudi officials crack down on the futures contract in the Saudi Riyal as it falters four months out.  This could lead to a huge black swan event.  If the dollar continues to rise, the peg will suffer more and this would cause oil ( a commodity) to fall with the rise in the dollar.  Massive USA dollars leaves the Kingdom which itself causes problems.  Thus the Saudi’s must devalue their riyal, something they do not wish to do.  However if they devalue then there will be a run on all mid-eastern currencies as they must devalue also to stay competitive.

 

(courtesy zero hedge)

Saudi Officials Crackdown On FX Market As Currency Peg Starts To Strain

As we warned previously, the devaluation, or breaking of the Saudi Riyal peg to the dollar, could be the black swan event for crude oil and the recent weakness in SAR forwards – while not as violent as Nigeria’s Naira – certainly signals a renewed market fear that breaking the peg is imminent. It appears Saudi officials are none too pleased with the free markets speculating on this devaluation and as Bloomberg reports, banks in Saudi Arabia are coming under fresh pressure over products that allow speculators to bet against the kingdom’s currency peg, according to people with knowledge of the matter, which were supposedly banned in January.

  • *SAUDI ARABIA SAID TO SEEK DETAILS ON BANKS’ FORWARD CONTRACTS
  • *SAUDI ARABIA SAID TO PROBE BANK CURRENCY TRADES AS PEG STRAINS
  • *SAUDI ARABIAN MONETARY AGENCY SAID TO WARN BANKS ON PRODUCTS

SAR Forwards signal a renewed interest in betting on a devaluation…

 

 

As Bloomberg reports, The Saudi Arabia Monetary Agency has asked lenders to explain why they are offering dollar-riyal forward structured products to customers less than four months after the regulator banned options contracts that let speculators place wagers on a currency devaluation, the people said. The authority, known as SAMA, didn’t reply to requests for comment.

There has been renewed speculation that the world’s biggest oil exporter won’t be able to maintain the riyal’s peg to the dollar as revenue plunges and the kingdom weighs paying government contractors with IOUs. Riyal forwards for the next 12 months rose to 590 points, the highest since Feb. 19, according to data compiled by Bloomberg, signifying increased speculation of a devaluation.

 

SAMA is asking banks to explain the rationale and relevance of the structured products for the economy and explain why they’ve entered into the products without informing the central bank, according to the people. It also wants transaction details of the derivatives since Jan. 18.

 

It’s also seeking to understand the impact of the products on Saudi banks’ U.S. dollar buy positions from the central bank as well as the risks to customers and banks, they said. The central bank warned any future structured derivative product should be submitted to SAMA for review and approval before they’re launched.

As The Telegraph’s Ambrose Evans-Pritchard recently wrote,Saudi Arabia faces a vicious liquidity squeeze as capital continues to leak out the country, with a sharp contraction of the money supply and mounting stress in the banking system.

Three-month interbank offered rates in Riyadh have suddenly begun to spiral upwards, reaching the highest since the Lehman crisis in 2008.

Reports that the Saudi government is to pay contractors with tradable IOUs show how acute the situation is becoming. The debt-crippled bin Laden group is laying off 50,000 construction workers as austerity bites in earnest.

Societe Generale’s currency team has advised clients to short the Saudi riyal, betting that the country will be forced to ditch its long-standing dollar peg, a move that could set off a cut-throat battle for global share in the oil markets.

Francisco Blanch, from Bank of America, said a rupture of the peg is this year’s number one “black swan event” and would cause oil prices to collapse to $25 a barrel. Saudi Arabia’s foreign reserves are still falling by $10bn (£6.9bn) a month, despite a switch to bond sales and syndicated loans to help plug the huge budget deficit.

The country’s remaining reserves of $582bn are in theory ample – if they are really liquid – but that is not the immediate issue. The problem for the Saudi central bank (SAMA) is that reserve  depletion automatically tightens  monetary policy.

Bank deposits are contracting. So is the M2 money supply. Domestic bond sales do not help because they crowd out Saudi Arabia’s wafer-thin capital markets and squeeze liquidity. Riyadh now plans a global bond issue.

Eventually the next cyclical oil spike will come to the rescue. The question is whether the Saudis can batten down the hatches and make it through the financial storm in a very leaky ship.

As for what happens if (or perhaps “when” is now the more appropriate term) the peg does fall, we close with the following bit from BofAML, who calls the breaking of the riyal peg the “number one black swan event for the global oil market in 2016”:

For oil, however, the most crucial point is what happens to Middle East currencies and in particular to the Saudi Riyal. In fact, Saudi Arabia’s FX reserves are still high and point to an ample buffer for now, but they have been falling at a relatively fast rate (Chart 21). However, should China allow for significantly faster FX depreciation than is currently priced in by markets, we believe oil prices could fall further. Naturally, the FX reserve drain on Saudi could accelerate to $18bn per month if Brent crude oil prices average $30/bbl (Chart 22), sharply reducing the Kingdom’s ability to retain its currency peg. 

 

However, if Saudi cannot resist the gravitational forces created by a persistently strong USD and depegs the SAR to follow Russia or Brazil, oil prices could collapse to $25/bbl. Weaker commodity prices would in turn add more downward pressure on EMs (Chart 26). Thus, even if micro supply and demand dynamics are improving, the path for oil prices in 2016 will heavily depend on how the USD moves against the CNY and the SAR. Or on a Saudi supply cut.

END

GLOBAL ISSUES

David Stockman comments on the intensifying global reflation ripping apart the globe.

a must read..

 

(courtesy David Stockman/ContraCorner)

Losing Ground In Flyover America

The cowardly dithering in the Eccles Building is sucking Wall Street punters into a vortex. And it promises to be the mother of all bubble implosions.

There is no other possible outcome for a stock market that is trading at 24Xreported earnings in the teeth of the most enormous headwinds ever accumulated.

The intensifying global deflation/recession lapping upon these shores gets more ominous by the day. Yet that’s only the half of it.

When you take an unvarnished look at the domestic economy, the real skunk in the woodpile becomes apparent. That is, the casino is essentially capitalizing earnings as if recessions have been outlawed and the nirvana of Keynesian full-employment has become a permanent condition, world without end.

Today’s bubblevision meme that all is well because the Fed judges the economy to be strong enough to absorb 1% money market rates some time next year is just a manifestation of that permanent full employment delusion. After all, earnings always collapse during a recession—–so implicitly there is not one in sight as far as the eye can see.

Then again, why would any one credit the Fed’s insight into the future, or even its grasp of the present? In its April minutes, for example, it noted that the world financial dangers that caused it to pause in March have now eased.

No they haven’t. As detailed below, the only thing that changed is that China went through another flash bubble in the commodity space that is already done and gone.

In fact, the Fed has never, ever anticipated a recession——even when we were in month 118 of the 1990s technology and dotcom bubble.

Likewise, it had no clue that the housing collapse was coming and was shocked by the September 2008 Wall Street meltdown. And now it has had to revise sharply lower every single GDP forecast it has made in the years since the crisis.

Here’s the thing. The Fed’s paint-by-the-numbers Keynesian incrementalism leaves it blind to the underlying rot in the US economy and to drastically over-estimate its capacity to maintain a stable growth equilibrium.

In fact, corporate America is being strip-mined by Fed-fueled financial engineering and flyover America is sinking irretrievably into debt, dependency and shrinking living standards.

You can’t capitalize that at 24X. And most certainly the fools who occupy the Eccles Building have no clue about the storms that are coming.

The idea that international conditions have eased, for example, is sheer idiocy. Take the most recent anomalies out of the Red Ponzi.

It appears that its latest bubble in iron ore and steel inflated white hot and then plunged abruptly——all within the span of less than 100 days.

And it did so in the context of excess capacity that is out of this world. That is, China has 1.3 billion tons of steel capacity and sustainable demand for 400-500 million tons at the very best. So ordinarily its industry fundamentals would have crushed prices and margins for a long time to come.

Instead, a massive surge of credit funded speculation in China’s incipient futures markets during February/March caused iron ore to rise from $40 to $70 per ton in a few weeks; and daily trading volumes to spike to such manic levels that they actually exceeded annual consumption.

Worse still, the speculative run-up in the futures markets caused idle steel mills to be re-opened—–they very opposite of the hundreds of millions of steel mill tonnage than needs to be closed.

During the past four weeks, by contrast, these same speculators have gone into a selling and liquidation frenzy, and prices will soon be back under $50 per ton. The whole episode had nothing to do with economics; it was just another eruption of China’s $30 trillion credit volcano.

Likewise, there has been a flash housing bubble, especially in the largest cities where prices briefly soared by upwards of 60% on a year over year basis. Again, this occurred in an economic backdrop that is is drowning in empty apartment units. By some estimates that monumental surplus numbers upwards of 60 million units, and the reason for it explains the bubble anomaly.

To wit, China’s tens of millions of real estate speculators do not want the units occupied in order to keep them shinny new; they are being purchased in lieu of stock certificates or, for the matter, lottery tickets, on the theory that real estate prices will rise forever.

In that same vein, word now comes that China’s northeastern harbors have become a parking lot for oil tankers. It seems that China loaned the OPEC have-not’s, such as Venezuela and Nigeria, upwards of $100 billion against the value of future oil deliveries. But the bulk of those loans were made when oil was above $100 per barrel, meaning that in order to avoid default these borrowers are now paying-in-kind (PIK) nearly three times more oil than was implicit in the original deals.

Accordingly, China is now receiving 1.0 million barrels per day of PIK payments, and most of that is flowing into a forest of “teapot refineries” that have sprung up in its northeastern rust belt.

Needless to say, these fly-by-night refineries did not rise to meet incremental demand for petroleum product. Diesel demand last year was actually down nearly 10%, and the increase in the auto fleet and vehicle miles driven did not make up the difference.

Consequently, much of the apparent increase in global crude oil demand is being indirectly routed through another potemkin village in the Red Ponzi.

At some point soon, therefore, the massive build-up in east Asia of refined petroleum stocks from these teapots will bring oil prices crashing back into the $20s, and with it the delusion that commodities are recovering and global growth is back on track.

To the contrary, the Red Ponzi continues to deflate at an alarming rate, and it is only the leading indicator.

The veritable depression in Brazil, the plunge in Japan’s trade accounts, the sharp drop in exports and PMIs in Korea, Taiwan, Singapore and the rest of east Asia, the swirling liquidity crisis in the petro-states, 31 straight months of sales declines at CAT and other giant global equipment suppliers, the slump in German machinery and luxury vehicle exports, the near double digit decline of US imports and rail volumes—–all speak to the global recession now approaching.

Yet even if our monetary politburo had the luxury of waiting for the massive excess capacity and unserviceable debts to be wrung out of the global economy, which will take years, it is missing the boat entirely on the domestic front. Main street America is not approaching full employment; it is tapped out and sinking to ever lower economic lows.

In a sense, Donald Trump’s shocking rise toward the presidency is a far better indicator of stress in the flyover zone of America than Janet Yellen’s entire “dashboard” of labor market indicators, which mostly measure the medicated and modeled self-referential noise published by the BLS.

Here is one example.  It shows that when reported hourly earnings are deflated by a more realistic deflator than the deeply flawed CPI, the wages of flyover America have been declining for the entirely of this century, saving for a few very short-lived spurts.

In fact, the average wage in constant 2015 dollars is down nearly 7% from its turn of the century level.

Real Average Hourly Earnings (SA) 1987-2016

(To be continued)

 

END

 

OIL ISSUES

Nigeria has a new terrorist group attacking oil facilities. Today  Niger Delta Avengers (NDA)  pre-announced a morning raid on Chevon and sure enough it is off line.  Nigeria is in deep financial trouble;

(courtesy zero hedge)

 

Chevron Facility Goes Offline In Nigeria Following Tweeted Attack By Mysterious Militant Group

Recently we presented a profile of the latest scourge to haunt Africa’s former oil producing powerhouse Nigeria, namely the Niger Delta Avengers, who not only maintained a regularly updated blog following the February launch of their Godaddy-hosted website which even includes a Contact Us section…

 

… but are perhaps the most social media savvy “freedom fighting” organization in the world today, with a twitter account that constantly updated on the group’s ongoing activities. In fact, just yesterday the NDA may have been the first such group to pre-announce a terrorist act before any of the major media outlets caught it.

We Warned but they didn’t Listen. @NDAvengers just blow up the Escravos tank farm Main Electricity Feed PipeLine.

It wasn’t a joke.

As Reuters reported this morning, Chevron’s onshore activities in Nigeria’s Niger Delta have been shut down by a militant attack at its Escravos terminal, the company confirmed on Thursday.

As Reuters observes, the Niger Delta Avengers, which has told oil firms to leave the Delta before the end of May, said late on Wednesday it had blown up the facility’s mains electricity feed.

“It is a crude line which means all activities in Chevron are grounded,” the source told Reuters, without elaborating. There was no immediate official confirmation from Chevron.

Zebo Austin, who lives nearby, told Reuters: “We heard a loud blast at the Abiteye to Escravos crude pipeline which was blown up last night by yet-to-be identified militant group.”

The Avengers and other militants, who say they are fighting for a greater share of oil profits, an end to pollution and independence for the region, have intensified attacks in recent months, pushing oil output to its lowest in more than 20 years and compounding the problems faced by Africa’s largest economy.

Abuja has responded by moving in army reinforcements but British Foreign Minister Philip Hammond said this month President Muhammadu Buhari needed to deal with the root causes of the conflict.

Crude oil sales from the Delta account for 70 percent of national income but residents in the area, some of whom sympathize with the militants, have long complained of poverty. Buhari has extended an amnesty deal signed with militants in 2009 that stepped up funding for the region. But he has cut funding for the amnesty program and canceled contracts with former militants to protect the pipelines they used to attack.

Perhaps as a result of this tweeted attack, the oil grind higher continues this morning pushing both benchmark contracts above $50, since this latest attack means even more Nigerian oil output will be halted temporarily until the government finally manages to rein in this still mysterious organization with unknown funding.

 

end

 

Oil tops 50 dollars for the first time since October

(courtesy zero hedge)

WTI Crude Tops $50 For First Time Since October Amid Supply Disruptions

WTI and Brent Crude oil prices have both broken above $50 for the first time since October 2015 this morning – almost doubling off its Feb 11th 26.05 lows. The immediate catalyst appears to be a combination of inventory drawdowns in US crude, continued US production cuts, and further supply disruptions (Nigeria specifically), none of which scream demand or growth is going to make a dent in the glut.

July WTI tops $50…

 

“The immediate driver is a good draw on U.S. crude stockpiles, helping to nudge the price up a bit further,” says Ric Spooner, chief analyst at CMC Markets in Sydney. “The market hasn’t had any bad news to knock it off its perch but the price is likely to struggle if it gets into the $50s. There is still quite a bit of inventory around”

 

With July WTI back at its highest since 11/5/15…

As Bloomnerg notes, other factors seen driving prices higher include:

  • Canada wildfires said to cut 1m b/d or more of oil sands output; output still returning
  • Nigeria oil output slumps to 20-yr low amid series of attacks
  • Venezuela has difficulties maintaining output amid power cuts, restriction of field services and theft
  • U.S. active oil rig count shrinks to least since Oct. 2009
  • IEA raises 2016 world oil demand fcast by 100k b/d to 95.9m b/d, non-OPEC supply to drop 800k b/d to 56.8m; “global supply surplus of oil will shrink dramatically later this year”

But we note that while everyone celebrates the recent rally, the curve has actually flattened notably since Nov 2015…

 

And we are getting an awful case of deja vu again…

 

Charts: Bloomberg

 

end

 

With rising oil prices and with the Saudis worried about Iran, Cunningham is betting the farm that the oil freeze is over and they will all pump at full blast

(courtesy Cunningham/Oil Price.com)

 

 

“The Freeze Is Finished” – Why Did Saudi Arabia Kill OPEC?

Submitted by Nick Cunningham via OilPrice.com,

The OPEC meeting is only a week away, but the chances of a positive result are as remote as ever. Rising oil prices, the heightened rivalry between Saudi Arabia and Iran, and Saudi Arabia’s willingness to go it alone will make a deal all but impossible.

First of all, Iran is not in a cooperative mood. According to the IEA, Iran has managed to boost oil production to 3.56 million barrels per day in April, its highest level since November 2011. Oil exports also jumped 600,000 barrels per day to 2 million barrels per day. Importantly, Iran’s output now stands at pre-sanctions levels, a key threshold that the Iranian government says it needs to reach before it would consider any cooperation on production limits with OPEC. However, Iran thus far does not see it that way, insisting that it still has more ground to make up.

More importantly, however, is Saudi Arabia’s shift in attitude. In a once unthinkable development, Saudi Arabia is backing away from OPEC. The cartel’s largest, most important, and most influential member will leave the group rudderless. Countless obituaries have been written about OPEC since November 2014, but the new direction that the Saudi monarchy is heading in all but ensures diminished influence for the oil cartel.

Saudi Arabia’s spurning of OPEC has been building for some time. In November 2014 it abandoned any plans to limit production in order to prop up prices, a strategy to pursue market share that has led to some downsides, but has largely achieved its goals. Saudi Arabia has seen revenues plummet, but it is producing at record levels and outlasting rival producers. U.S. shale, for instance, is down about 1 million barrels per day (mb/d) from the April 2015 peak, and more than 70 North American drillers have gone bankrupt.

But Saudi Arabia has gone further to distance itself from OPEC. In April, Saudi Arabia scuttled the production freeze deal in Doha, killing what would have been only a modest agreement that put limits on oil output. By all accounts, the emergence of the young Deputy Crown Prince Mohammed bin Salman led to a harder line from Saudi Arabia. The replacement of long-time oil minister Ali al-Naimi a few weeks later solidified perceptions of a new era in Saudi Arabia. The Saudi government has very little inclination to limit its output just as its strategy is bearing fruit, and even less of a willingness to work with Iran, its regional rival, who it is battling in proxy wars in Yemen and Syria. Saudi Arabia is going it alone and oil production is now close to record levels, above 10.2 mb/d.

Crucial to Saudi Arabia’s downgrading of OPEC on its list of priorities is its ambitious project to transition the country away from an overwhelming dependence on oil sales. The “Vision 2030” economic plan will involve the partial privatization of Saudi Aramco, with proceeds to be invested in a $2 trillion sovereign wealth fund, which in turn will make strategic investments in non-oil assets. If it IPO goes forward, Saudi Arabia, one of the world’s largest oil producers and still the most important player in OPEC, will be the only OPEC member without a fully state-owned oil company.

Saudi Arabia’s decision to walk away from Doha, combined with the colossal economic reforms it is putting in place, all but assure that it no longer cares about cooperating with OPEC members to influence market prices for crude oil.

“The main take-away from Saudi Vision 2030 is that there’s just no role for OPEC,” Seth Kleinman, head of European energy research at Citigroup Inc., told Bloomberg in a recent interview. “Or, you can have an OPEC without Saudi Arabia, which just isn’t much of an OPEC.” Given that Saudi Arabia is the only country with significant spare capacity, which is what allows it to ramp up and down oil production, OPEC is more or less meaningless without its largest producer.

Moreover, even if Saudi Arabia was not embarking on this epochal change in the structure of its economy, there is little reason for OPEC to limit production at its upcoming meeting in Vienna. Oil prices are finally rebounding, up more than 80 percent from the February lows. Outages in supply from Canada to Nigeria have tightened markets. U.S. production is down 1 mb/d and will continue to fall for the foreseeable future. And even oil inventories appear to be leveling off.

“I don’t think OPEC will decide anything,” a source from a major oil producer in the Middle East toldReuters. “The market is recovering because of supply disruptions and demand recovery.” An OPEC delegate told Reuters that any changes to the cartel’s policy is off the table. “Nothing. The freeze is finished,” the OPEC source said.

end

Your early morning currency/gold and silver pricing/Asian and European bourse movements/ and interest rate settings/THURSDAY morning 7:00 am

Euro/USA   1.1182 UP .0027 ( STILL REACTING TO USA FAILED POLICY

USA/JAPAN YEN 109.99  DOWN 0.140 (Abe’s new negative interest rate (NIRP), a total DISASTER/SIGNALS U TURN WITH INCREASED NEGATIVITY IN NIRP/JAPAN OUT OF WEAPONS TO FIGHT ECONOMIC DISASTER

GBP/USA 1.4706 UP.0006 (LESS OF A THREAT OF BREXIT)

USA/CAN 1.2947 DOWN .0087

Early THIS THURSDAY morning in Europe, the Euro ROSE by 27 basis points, trading now WELL above the important 1.08 level FALLING to 1.1367; Europe is still reacting to deflation, announcements of massive stimulation (QE), a proxy middle east war, and the ramifications of a default at the Austrian Hypo bank, an imminent default of Greece, Glencore, Nysmark and the Ukraine, along with rising peripheral bond yield further stimulation as the EU is moving more into NIRP, and NOW THE USA’S NON tightening by FAILING TO RAISE THEIR INTEREST RATE / Last night the Shanghai composite  CLOSED UP BY 7.37 PTS OR 0.26% / Hang Sang CLOSED UP 29.06 OR  0.14%   / AUSTRALIA IS HIGHER BY 0.29%(RESOURCE STOCKS DOING BETTER / ALL EUROPEAN BOURSES ARE MIXED     as they start their morning/

We are seeing that the 3 major global carry trades are being unwound. The BIGGY is the first one;

1. the total dollar global short is 9 trillion USA and as such we are now witnessing a sea of red blood on the streets as derivatives blow up with the massive rise in the rise in the dollar against all paper currencies and especially with the fall of the yuan carry trade. The emerging market which house close to 50% of the 9 trillion dollar short is feeling the massive pain as their debt is quite unmanageable.

2, the Nikkei average vs gold carry trade ( NIKKEI blowing up and the yen carry trade HAS BLOWN up/and now NIRP)

3. Short Swiss franc/long assets blew up ( Eastern European housing/Nikkei etc.

These massive carry trades are terribly offside as they are being unwound. It is causing global deflation ( we are at debt saturation already) as the world reacts to lack of demand and a scarcity of debt collateral. Bourses around the globe are reacting in kind to these events as well as the potential for a GREXIT>

The NIKKEI: this THURSDAY morning: closed UP 15.11 OR 0.09% 

Trading from Europe and Asia:
1. Europe stocks MOSTLY IN THE GREEN AS  THEY START THEIR DAY

2/ CHINESE BOURSES / : Hang Sang CLOSED UP 29.06 PTS OR 0.14% . ,Shanghai CLOSED UP 7.37 OR 0.26%/ Australia BOURSE IN THE GREEN: /Nikkei (Japan) CLOSED IN THE GREEN /India’s Sensex IN THE GREEN

Gold very early morning trading: $1228.75

silver:$16.45

Early THURSDAY morning USA 10 year bond yield: 1.866% !!! UP 1 in basis points from WEDNESDAY night in basis points and it is trading WELL BELOW resistance at 2.27-2.32%. The 30 yr bond yield RISES to 2.664 PAR in basis points from WEDNESDAY night. (SPREAD GOES AGAINST THE BANKS)

USA dollar index early THURSDAY morning: 95.15 DOWN 26 CENTS from WEDNESDAY’s close.(Now below resistance at a DXY of 100.)

This ends early morning numbers THURSDAY MORNING

END

And now your closing THURSDAY NUMBERS

Portuguese 10 year bond yield:  3.02% UP 6 in basis points from WEDNESDAY

JAPANESE BOND YIELD: -0.1200% DOWN 4 in   basis points from WEDNESDAY

SPANISH 10 YR BOND YIELD:1.50%  UP 3 IN basis points from WEDNESDAY

ITALIAN 10 YR BOND YIELD: 1.38  UP 3 IN basis points from WEDNESDAY

the Italian 10 yr bond yield is trading 12 points lower than Spain.

GERMAN 10 YR BOND YIELD: .146% DOWN 1  IN BASIS POINTS ON THE DAY

END

IMPORTANT CURRENCY CLOSES FOR THURSDAY

Closing currency crosses for THURSDAY night/USA DOLLAR INDEX/USA 10 YR BOND YIELD/3:30 PM

Euro/USA 1.1191 UP .0037 (Euro =UP 37 basis points/ represents to DRAGHI A COMPLETE POLICY FAILURE/reacting to dovish YELLEN/ANOTHER FALL IN USA;YEN CROSS TODAY

USA/Japan: 109.74 down 0.389 (Yen up 39 basis points )

Great Britain/USA 1.4662 down.0033 Pound down 33 basis points/

USA/Canada 1.2986 DOWN 0.0047 (Canadian dollar UP 47 basis points with OIL FALLING a BIT(WTI AT $49.35).

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

This afternoon, the Euro was UP by 37 basis points to trade at 1.1162

The Yen ROSE to 109.74 for a LOSS of 39 basis points as NIRP is STILL a big failure for the Japanese central bank/

The pound was DOWN 33 basis points, trading at 1.4662 (LESS BREXIT FEARS)

The Canadian dollar ROSE by 47 basis points to 1.2986, WITH WTI OIL AT:  $49.29

The USA/Yuan closed at 6.5560

the 10 yr Japanese bond yield closed at -.120% DOWN 4 IN BASIS  points in yield/

Your closing 10 yr USA bond yield: DOWN 4  IN basis points from WEDNESDAY at 1.822% //trading well below the resistance level of 2.27-2.32%)

USA 30 yr bond yield: 2.625 DOWN 4 in basis points on the day ( HUGE POLICY ERROR)

BANKS NEED THE LONGER BOND HIGHER IN YIELD: INSTEAD THE SPREAD LESSENS.

Your closing USA dollar index, 95.18 DOWN 23 IN CENTS ON THE DAY/4 PM

Your closing bourses for Europe and the Dow along with the USA dollar index closing and interest rates for THURSDAY

London:  CLOSED UP 2.80 OR 0.04%
German Dax :CLOSED UP 67.50 OR 0.46%
Paris Cac  CLOSED UP 31.00  OR 0.69%
Spain IBEX CLOSED DOWN 45.80 OR 0.50% BANKING PROBLEMS
Italian MIB: CLOSED UP 15.53 OR 0.09%

The Dow was DOWN 23.22  points or 0.13%

NASDAQ UP 6.88 points or 0.14%
WTI Oil price; 49.29 at 4:30 pm;

Brent Oil: 49.38

USA DOLLAR VS RUSSIAN ROUBLE CROSS:  65.84 (ROUBLE DOWN 45/100 ROUBLES PER DOLLAR FROM YESTERDAY) AS THE PRICE OF BRENT FELL AND WTI FELL

TODAY THE GERMAN YIELD FELL TO .146  FOR THE 10 YR BOND

.

END

 

This ends the stock indices, oil price, currency crosses and interest rate closes for today

Closing Price for Oil, 5 pm/and 10 year USA interest rate:

WTI CRUDE OIL PRICE 5 PM:49.41

BRENT: 49.34

USA 10 YR BOND YIELD: 1.828%

USA DOLLAR INDEX: 95.14 down 27 cents

END

And now your more important USA stories which will influence the price of gold/silver

Trading Today in Graph form;  VERY IMPORTANT FOR YOU TO VIEW ALL THE CHARTS TODAY

Waiting For Yellen…

 

Let’s start today with what didn’t go up…

USDJPY – once 110.000 stops had been run – decoupled lower from stocks…

 

Oil – once it tagged $50 – decoupled lower from stocks…

 

High yields bonds decoupled from stocks…

 

Treasury yields decoupled lower from stocks…

 

So where does that leave us for the week…

Well stocks love it!!

 

Although momo started to fade today… once again pivoiting around EU close with a weak US close…

 

As volume collapsed even more…

 

And VIX was pushed to 13.55 lows… but was unable to sustain stocks…

 

AAPL extended its winning streak to 5 days – topping $100 and breaking above its 100DMA (good old buybacks!!)

 

Bond rallied too – after the 7Y auction today…

 

The Dollar Index fell for the 2nd day in a row – note that Cable fell today as Brexit concerns reappeared…

 

Despite the drop in the dollar, commodities slipped lower today (with crude underperforming) but the week has one clear pattern – buy growthy commods, sell PMs…

 

WTI Crude tagged $50 today – the highest for the July contract since early November 2015… and then sold off…

 

Charts: Bloomberg

end

 

Core durables slump which sends the dollar reeling:

(courtesy zero hedge)

 

Core Durable Goods Orders Slump As Inventories Decline For 4th Straight Month

Core Durable Goods Orders tumbled 0.8% MoM and 6.7% YoY – down 15 of the last 18 months. However, following drastic revisions across the entire time series and thanks to a surge in military spending (+3.7%) and non-defense aircraft (+64.9% – bringing back memories of Boeing’s aberration from a year or two back) the headline Durable Goods print rose 3.4% MoM. More worrying for GDP enthusiasts is the 0.2% decline in durable goods inventories in April for the 4th straight month.

Not a pretty picture under the hood….

 

Non-Defense Aircraft New Orders spiked 64.9% – but in context, it’s not so impressive…

 

Charts: Bloomberg

end

 

As we have pointed out to you on several occasions, USA citizens will see a huge jump in health insurance:

(courtesy zero hedge)

 

This Is How Much Your Health Insurance

Payment Is About To Jump By

It’s official: years of warnings that Obamacare will lead to dramatic increases in healthcare premiums are about to be validated.

As the WSJ writes, big health plans stung by losses in the first few years of the U.S. health law’s implementation are seeking hefty premium increases for individual plans sold through insurance exchanges in more than a dozen states.

To be sure, we have extensively covered the imminent danger of rising healthcare prices as a result of Obamacare’s intrusive intervention in the insurance sector; however now that this is about to become mainstream information, we expect consumers to hunker down and save even more in anticipation of what is about to be a shock price increase for millions of middle-class American families.

As the WSJ reports, the insurers’ proposed rates for individual coverage in states that have made their 2017 requests public largely bear out health plans’ grim predictions about their challenges under the health-care overhaul. According to the insurers’ filings with regulators, large plans in states including New York, Pennsylvania and Georgia are seeking to raise rates by 20% or more.

In states such as Florida and Maryland, insurers are seeking to raise premiums by percentage averages that are markedly above 10%. Among those that have published so far, only in Vermont do big insurers’ requests fall below 10%.  Proposals still have to be approved by state regulators, and a full picture of final approved rates across the entire country likely won’t be known until shortly before HealthCare.gov and state equivalents reopen for the law’s fourth main enrollment window on Nov. 1.

Nonetheless, the proposed average increases that are available are a vivid indicator this year of how insurers are adapting to the 2010 Affordable Care Act’s transformation of the way health coverage is priced and sold in the U.S.

So for all those currently enrolled in healthcare plans administered in the following states, this is how much, on average, your plans will go up by.

 

The silver lining? Since this effective tax goes straight to “boosting US GDP“, we look forward to a year of “above trendling” GDP growth thanks to this forced reallocation of consumers’ disposable income into the infamous “healthcare” category.

end
Well that about does it for tonight
I will see you tomorrow night
I will not be doing a commentary on Monday due to Memorial day holiday.
Harvey

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3 comments

  1. Hey Harv’ , what gives with your FORMAT being visually mish-mash.
    You feeling ok ??? Time 4 a new set of glasses??

    Like

  2. hello Harvey, I have been reading your blog since 3-4 years and learned a lot!! Thank you! Since a few days all the data below the SLV ounce data is completely mashed together as plain unformatted text.. no separation between articles, no pictures…. I thought it might be a problem on my end but even if I allow all scripts it does not change. Hope that you could have a look. Many thanks, franc

    Like

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